The Philippine Competition Commission (PCC), the country’s anti-trust watchdog formed only in 2016, has voided a key transaction in Dennis Uy’s acquisition of a controlling stake in shipping and logistics companies Negros Navigation and 2GO Group.

In a 33-page decision made public on February 19, the PCC nullified the merger between Dennis Uy’s holding firm Udenna Corporation and Dutch company KGL Investment Cooperatief U.A. (KGLI Coop) for failing to notify the anti-trust body of their deal.

The commission also imposed a fine of Php19.6 million on both parties equivalent to one percent of the value of their merger transaction.

The deal was an important element in Udenna Corp.’s takeover of Negros Navigation and 2GO Group., two of the country’s major domestic shipping companies.

Udenna Corp.’s acquisition of a controlling stake in 2GO Group, a leading shipping and logistics company with 24 vessels and 2,900 retail branches around the country, was one of the biggest takeovers in the last two years of Uy, the fast-rising Davao-based tycoon.

The 43-year-old entrepreneur, who is known to be personally close to President Rodrigo Duterte, first rose to national prominence after he founded and grew Phoenix Petroleum into one of the country’s major independent petroleum retailers. He donated Php30 million to the latter’s campaign in the 2016 presidential polls.

Through the acquisition of KGLI Coop, Udenna Corp. was able to acquire full ownership of another Dutch company, KGLI BV, which in turn owned 39.7 percent of KGLI-NM, another holding firm incorporated in the Philippines.

KGLI-NM owned 59.6 percent of Philippine shipping company Negros Navigation Co., according to general information sheets on file with the Securities and Exchange Commission. The SM Group of Henry Sy Sr., the country’s richest person, is reported to own about a third of Negros Navigation. Negros Navigation owns 88.31 percent of 2GO Group, according to the company’s filings with the SEC.

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The PCC found that Udenna Corp. and KGLI Coop violated Section 17 of the Philippine Commission Act (PCA) and Rule 4, Section 3 of the law’s implementing rules and regulation (IRR), which state mergers or acquisition agreements that exceed Php1 billion in value must be notified to the commission.

“The law is clear: an agreement consummated in violation of the competition law’s compulsory notification requirement shall be fined and is considered void,” the Commission’s decision read. This is the first merger transaction ruled as void by the PCC for failure of notification.

According to the PCC, Udenna completed its acquisition of KGLI Coop’s shares in KGL Investment B.V. (KGLI-BV) through a Deed of Transfer dated August 19, 2016. At the time of transaction, KGLI-BV owned 39.71 percent of KGLI-NM Holdings, Inc. (KGLI-NM) which had a value of $41.8 million or Php1.97 billion, according to the PCC decision.

2GO is one of the first firms Uy acquired after a series of company buyouts in the past one and a half years.

Udenna and KGLI Coop argued the merger deal is exempt from the PCC’s requirement of compulsory notification as the shares of KGLI-BV in KGLI-NM are excluded from the computation of the aggregate value of assets of the former.

Under the IRR, the value of shares held by the acquired company is excluded from the computation of the value of acquisition to avoid double counting of assets. However, assets of the controlled corporations are still included in the valuation.

Still, PCC ruled that whether or not KGLI-BV had control over KGLI-NM at the time of transaction, the deal will still be subject to notification as the total assets of the latter in the Philippines were valued at Php18.3 billion.

“This is a reminder for companies to comply with the Philippine Competition Act, including filing a sufficient notification prior to consummation of a merger that meets the thresholds,” the PCC said in a statement.

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It’s not clear how the PCC move, if upheld by the courts, would affect Udenna Corp.’s acquisition of controlling stakes in Negros Navigation and 2GO Group.

In a statement, Udenna said PCC’s decision would not affect its acquisition of the Dutch shipping company as the latter remain “committed to the consummation of the transaction.” It is also weighing its options on what it could do next.

“Udenna is of the view that it has sufficient basis to challenge the PCC decision either by filing a Motion for Reconsideration with the PCC, or through a Petition to the Court of Appeals,” Udenna Corp. Vice President for Corporate Affairs Adel Tamano said in a statement.

The PCC said Udenna has the option to file a proper notification of their transaction with KGLI Coop and undergo a merger review process.

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